The Affordable Care Act: The Gift that Keeps on Giving

Posted on December 04, 2017

The Internal Revenue Service has announced that it will begin issuing letters regarding potential pay or play penalties to Applicable Large Employers (“ALE”) for the year 2015. Indications are that employers will begin receiving the letters in December 2017 – Happy Holidays!

The form of the notice is IRS Letter 226J, and a copy of the form can be reviewed here.

An ALE for 2015 was an entity (together with its controlled or affiliated service group members) that employed an average of 50 or more full-time (30 or more hours per week, and including full-time equivalents) during 2014. For 2015 there were transition rules available to organizations employing between 50 and 100 employees. The “pay or play” penalties are assessed against ALEs that either did not offer affordable, minimum value coverage or offered such coverage but failed to offer the coverage to 70% of its full-time employees in 2015 (and 95% of full-time employees after 2015).

What to do?

Whether you have reason to believe your company will receive a pay or play letter, make sure your employment records relative to the identification of full-time and full-time equivalent employees are documented and accurate. Make sure you have evidence (e.g. standard notices to employee participants; participant elections) to demonstrate offers of coverage.

If you receive the IRS Letter, you will generally have 30 days to respond. The letter provides you with the opportunity to disagree with the penalty determination and to provide an explanation and correcting information. If your company or any member of your control group receives the pay or play notice, promptly review the penalty assertion against your employment records and 2015 Forms 1094-C and 1095-C. At the time of filing for 2015 (extended because of confusion among the IRS, insurers and employers until June, 2016), the reporting systems and mechanics were new to employers so the IRS may be assessing a penalty based on inaccurate or incomplete data or information that was improperly reported. With a couple of years reporting experience you may uncover a reporting error that negates the penalty. Determine whether you properly accounted for the transition relief and whether the IRS has given you full credit for this relief.

Do not ignore the letter. It is like any assessment letter from the IRS and timely response preserves your appeal rights.

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